Queensland Treasury 18-K/A Annual report (foreign governments) (amended)

EXHIBIT (c)(v)

2002-03 Mid Year Fiscal and Economic Review

QUEENSLAND’S MID YEAR FISCAL AND ECONOMIC REVIEW

The Deputy Premier and Treasurer, Terry Mackenroth, today released the State’s Mid Year Fiscal and Economic Review, as required under the Government’s Charter of Social and Fiscal Responsibility and the Australian Loan Council’s Uniform Presentation Framework.

The Mid Year Fiscal and Economic Review provides an update on the fiscal and economic outlook for Queensland, based on assessments prepared by Queensland Treasury.

ECONOMIC OUTLOOK

Economic growth in Queensland is again forecast to exceed that of Australia in 2002-03. The Queensland economy is forecast to grow by 4¼% this year, considerably faster than national growth which is forecast to be 3%. This is despite an additional detraction from growth of an estimated ½% point associated with the deterioration in drought conditions across the State since the 2002-03 State Budget. In the absence of drought and weaker than expected international conditions, Queensland would be approaching last year’s extraordinary economic performance, when gross state product grew by 5.3%.

Strong domestic demand is forecast to continue to support economic growth at a time when Queensland’s external environment is weak and highly uncertain. Investment is forecast to be a major driver of growth, with business investment rising rapidly in response to several large development projects beginning in the State this year, as well as strong levels of business confidence generally. Lower than forecast interest rates in 2002-03 have also supported the affordability of investment in both the household and business sectors of the economy.

Strong employment growth of 2¾% is forecast for 2002-03, higher than previously forecast in the State Budget. This will result in a sharp reduction in the State’s unemployment rate from 7.9% in 2001-02 to 7% in 2002-03, despite solid growth in labour supply. This will be the lowest year-average unemployment rate in the State since 1989-90.

The State’s population is forecast to increase by 2% in 2002-03, stronger than the Budget forecast of 1¾%. This is the result of faster than expected growth in net interstate migration, which is estimated to have added around 33,000 to the Queensland population in the year to September 2002. This also underpins the solid growth in Queensland’s labour force forecast for 2002-03.

A revised Economic Parameters Table incorporating these revisions is provided as Table 1 of Attachment A.

FISCAL OUTLOOK

General Government Sector

The General Government sector is expected to record a cash surplus of $364 million in 2002-03 and cash surpluses in all outyears.

Taxation revenue has performed strongly in the first half of 2002-03 as a result of the continuing high

levels of activity in the property market. Property related taxes such as conveyance duty have been revised upwards. Payroll tax has also been revised upwards reflecting higher than expected employment growth.

Partially offsetting significantly improved taxation revenues, royalties revenue has been revised downwards due to lower than forecast commodity prices and the recent strength in the Australian dollar.

The moderate increase in General Government expenses reflects factors such as revisions to depreciation expenses, final timing of expenses between 2001-02 and 2002-03, superannuation interest expense revisions related to liability revaluations and increased expenses related to additional Commonwealth specific purpose payments.

The overall growth in Taxation and Other revenue has contributed to a reduced borrowing requirement in 2002-03 and all of the forward estimate years, underscoring the improvement in the underlying revenue and expenditure balance.

The 2002-03 General Government operating result has been revised to a deficit of $741 million.

This forecast General Government operating deficit position for 2002-03 is due to a significant downward revision to investment earnings—reflecting ongoing volatility in equity markets.

The last eighteen months have been extraordinary in terms of investment history. The sluggish global economy, concerns relating to corporate governance and potential war with Iraq have led to one of the biggest equity market downturns in several decades. These events have made the investment climate extremely difficult for all investors.

In an environment of market volatility, it is extremely difficult to forecast investment returns associated with the full funding of superannuation and other employee entitlements. For the purpose of the Mid Year Review, an assumption of 0% has been used for 2002-03, which is generally consistent with the assumptions used by other jurisdictions in their Mid Year Review publications.

While other States have also been impacted by poor investment returns, the impact on the Queensland General Government sector is magnified because of the relatively larger asset holdings associated with the full funding of employee entitlements and in contrast to other jurisdictions the assets and liabilities associated with superannuation are held and reflected in the General Government sector. If Queensland’s superannuation arrangements were structured on the same basis as other jurisdictions, the General Government sector underlying operating result for 2001-02 and 2002-03 would be in surplus, as outlined below:

	Operating Result (Including Superannuation) $M	Underlying Operating Result (i.e. Excluding Superannuation) $M
2001-02 Actual	(894)	294
2002-03 Estimate	(741)	42

The 2003-04 and outyear forward estimates indicate operating surpluses in all years.

Public Trading Enterprise Sector

The Public Trading Enterprise sector is projected to have a GFS net operating deficit of $201 million in 2002-03, an improvement on the $307 million deficit forecast in the 2002-03 State Budget.

This deficit partly reflects the inclusion in the sector of some entities which, in the course of their normal operations, do not operate in surplus. In addition, some dividends are paid from prior year surpluses, capital restructuring and gains on the sale of assets. Under GFS conventions, proceeds from these sources are not included in revenues and hence dividend payments arising from these sources produce negative operating results.

The Public Trading Enterprise sector net operating balance is expected to improve in 2003-04 and return to surpluses in 2004-05 and 2005-06.

LOAN COUNCIL ALLOCATION

Under the Australian Loan Council Financial Agreement, each jurisdiction provides a Loan Council Nomination, comprising the State Government cash surplus/deficit and additional items which contribute to net borrowing, giving an estimate of the Public Sector’s call on financial markets. The nominations are also considered by the Loan Council as to whether they are consistent with macroeconomic policy objectives.

The revised 2002-03 LCA estimate is $329 million (Budget-time estimate of $666 million), primarily reflecting lower net borrowing requirements by local governments and the public trading enterprise sector.

ATTACHMENT A

Table 1

Major Queensland Economic Parameters¹

	Outcome	Budget Forecast	MYFER Forecast
	2001-02	2002-03	2002-03
Gross state product3	5.3	4¼	4¼
Employment	1.9	2½	2¾
Unemployment rate	7.9	7½	7
Inflation	2.9	2¾	3
Average earnings4	2.9	3¾	3¾
Population	1¾	1¾	2
Notes:
1. Figures not quoted as a fraction are an actual outcome. 2. Chain volume measure, 2000-01 reference year. 3. Average earnings are on a State Accounts basis. Source: Queensland Treasury.

Table 2

Queensland’s Revised 2002-03 Loan Council Allocation ¹

	2002-03 Budget LCA Estimate $ million		2002-03 Revised MYR Estimate $ million
General Government Cash Deficit/(Surplus)2	(354	)	(364	)
Public Trading Enterprises Cash Deficit/(Surplus)2	1,004		871
State Government Cash Deficit/(Surplus)2	650		507
Advances Paid (net)	(1	)	9
Memorandum Items	17		(187	)
Loan Council Allocation	666		329

1. The Loan Council Allocation is based on the GFS cash surplus / (deficit) measure, rather than the more widely reported Net Operating Balance.

2. Figures in brackets represent surpluses.

Table A.1

General Government GFS Net Operating Result

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
OPERATING RESULT
GFS revenue
Taxation Revenue	4,815		5,375		5,449		5,724		5,841
Current grants and subsidies	9,520		9,762		10,136		10,516		10,986
Capital grants	696		454		411		404		316
Sales of goods and services	1,837		1,891		1,927		1,944		1,991
Interest income	(464	)	136		1,117		1,222		1,331
Other	2,453		2,082		2,050		2,084		2,218
Total GFS revenue	18,857		19,699		21,091		21,894		22,683
less
GFS expenses
Gross operating expenses	13,733		14,209		14,859		15,422		15,837
Superannuation interest expense	626		765		885		982		1,085
Other interest expense	223		236		263		303		337
Current transfers	4,713		4,710		4,677		4,822		5,013
Capital transfers	456		519		333		304		305
Total GFS expenses	19,751		20,440		21,018		21,836		22,578
equals
GFS net operating balance	(894	)	(741	)	72		58		106
less
Net acquisition of non-financial assets
Gross fixed capital formation	2,221		1,788		2,057		1,727		1,565
less      Depreciation	1,511		1,579		1,606		1,625		1,641
plus     Change in inventories	(2	)	26		(14	)	(5	)	(6	)
equals Total net acquisition of non-financial assets	708		236		437		97		(82	)
equals
GFS net lending/borrowing (Fiscal Balance)	(1,602	)	(976	)	(364	)	(37	)	188

5

Table A.2

Public Trading Enterprise GFS Net Operating Result

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
OPERATING RESULT
GFS revenue
Current grants and subsidies	988		840		872		1,015		1,080
Capital grants	43		48		43		44		45
Sales of goods and services	6,012		5,651		5,891		6,169		6,408
Interest income	72		64		63		56		56
Other	280		261		270		297		310
Total GFS revenue	7,395		6,863		7,139		7,581		7,899
less
GFS expenses
Gross operating expenses	5,573		5,318		5,503		5,769		5,693
Other interest expense	629		752		815		807		815
Other property expenses	1,289		980		944		993		1,112
Current transfers	88		12		—		—		—
Capital transfers	7		3		3		3		3
Total GFS expenses	7,587		7,064		7,266		7,573		7,624
equals
GFS net operating balance	(192	)	(201	)	(127	)	9		275
less
Net acquisition of non-financial assets
Gross fixed capital formation	1,434		1,881		1,848		1,661		1,579
less     Depreciation	1,080		1,142		1,246		1,318		1,374
plus     Change in inventories	(4	)	(3	)	(6	)	(4	)	(4	)
equals Total net acquisition of non-financial assets	349		736		596		339		202
equals
GFS net lending/borrowing (Fiscal Balance)	(541	)	(937	)	(723	)	(330	)	73

Table A.3

State Non-PFE GFS Net Operating Result

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
OPERATING RESULT
GFS revenue
Taxation Revenue	4,533		5,089		5,160		5,431		5,544
Current grants and subsidies	9,478		9,774		10,146		10,526		10,993
Capital grants	734		499		454		448		361
Sales of goods and services	7,733		7,378		7,654		7,946		8,232
Interest income	(393	)	186		1,167		1,265		1,373
Other	1,419		1,381		1,394		1,388		1,416
Total GFS revenue	23,504		24,306		25,975		27,004		27,920
less
GFS expenses
Gross operating expenses	19,187		19,084		19,912		20,717		21,052
Superannuation interest expense	626		765		885		982		1,085
Other interest expense	850		974		1,065		1,097		1,139
Other property expenses	—		(1	)	(1	)	(1	)	(1	)
Current transfers	3,491		3,913		3,839		3,840		3,963
Capital transfers	457		513		330		301		301
Total GFS expenses	24,612		25,248		26,031		26,936		27,539
equals
GFS net operating balance	(1,108	)	(942	)	(55	)	67		380
less
Net acquisition of non-financial assets
Gross fixed capital formation	3,632		3,669		3,905		3,388		3,144
less     Depreciation	2,591		2,720		2,852		2,943		3,014
plus    Change in inventories	(6	)	23		(20	)	(9	)	(10	)
equals Total net acquisition of non-financial assets	1,035		972		1,032		436		119
equals
GFS net lending/borrowing (Fiscal Balance)	(2,144	)	(1,914	)	(1,088	)	(368	)	261

Table A.4

General Government GFS Balance Sheet

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
ASSETS
Financial assets
Cash and deposits	1,179		1,148		1,063		1,210		1,249
Advances paid	152		167		184		198		210
Investments, loans and placements	13,161		13,607		14,363		15,700		17,120
Other non-equity assets	4,319		4,130		4,860		5,056		5,394
Equity	12,804		13,285		13,368		13,753		14,465
Total financial assets	31,615		32,337		33,837		35,917		38,438
Non-financial assets	45,485		46,549		47,797		48,763		49,588
Total assets	77,100		78,886		81,634		84,679		88,025
LIABILITIES
Borrowing	3,459		3,894		4,454		4,902		5,125
Superannuation liability	10,062		11,826		13,144		14,541		16,020
Other employee entitlements and provisions	3,360		3,121		3,056		3,023		3,023
Other non-equity liabilities	2,125		2,108		2,115		2,123		2,132
Total liabilities	19,007		20,949		22,769		24,589		26,299
Net worth	58,093		57,936		58,865		60,091		61,726
Net Financial Worth	12,609		11,386		11,068		11,328		12,138
Net Debt	(11,032	)	(11,027	)	(11,155	)	(12,206	)	(13,454	)

Table A.5

Public Trading Enterprise GFS Balance Sheet

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
ASSETS
Financial assets
Cash and deposits	732		802		727		455		638
Advances paid	—		—		—		—		—
Investments, loans and placements	973		922		668		699		731
Other non-equity assets	1,738		1,487		1,307		1,290		1,263
Equity	51		38		40		43		49
Total financial assets	3,494		3,250		2,741		2,488		2,681
Non-financial assets	25,133		26,150		27,046		27,706		28,281
Total assets	28,627		29,399		29,788		30,194		30,962
LIABILITIES
Deposits held	72		72		72		72		72
Borrowing	12,269		12,887		12,995		12,824		12,546
Other employee entitlements and provisions	3,088		3,011		3,144		3,277		3,572
Other non-equity liabilities	1,028		828		892		951		990
Total liabilities	16,458		16,798		17,103		17,124		17,180
Net worth	12,170		12,601		12,685		13,070		13,782
Net Financial Worth	(12,964	)	(13,548	)	(14,361	)	(14,635	)	(14,499	)
Net Debt	10,636		11,235		11,673		11,741		11,249

Table A.6

State Non-PFE GFS Balance Sheet

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
ASSETS
Financial assets
Cash and deposits	1,911		1,950		1,789		1,665		1,887
Advances paid	133		162		179		193		205
Investments, loans and placements	14,069		14,439		14,940		16,309		17,761
Other non-equity assets	2,919		2,750		3,058		3,064		3,049
Equity	719		755		757		760		766
Total financial assets	19,751		20,056		20,723		21,991		23,668
Non-financial assets	70,584		72,665		74,810		76,435		77,835
Total assets	90,335		92,721		95,533		98,426		101,503
LIABILITIES
Deposits held	72		72		72		72		72
Borrowing	15,645		16,687		17,355		17,632		17,577
Superannuation liability	10,062		11,826		13,144		14,541		16,020
Other employee entitlements and provisions	3,484		3,530		3,470		3,526		3,638
Other non-equity liabilities	2,979		2,670		2,626		2,565		2,470
Total liabilities	32,242		34,785		36,667		38,335		39,777
Net worth	58,093		57,936		58,865		60,091		61,726
Net Financial Worth	(12,491	)	(14,729	)	(15,944	)	(16,344	)	(16,109	)
Net Debt	(396	)	208		518		(464	)	(2,204	)

Table A.7

General Government GFS Statement of Cash Flows

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
Receipts from operating activities
Taxes received	4,910		5,375		5,449		5,724		5,841
Grants and subsidies received	10,031		10,208		10,537		10,909		11,291
Sales of goods and services	1,959		1,975		2,037		2,045		2,098
Other receipts	2,224		2,181		2,362		3,003		3,092
Total operating receipts	19,124		19,739		20,386		21,682		22,322
Payments for operating activities
Payments for goods and services	(11,279	)	(11,930	)	(12,849	)	(13,341	)	(13,721	)
Interest	(237	)	(237	)	(262	)	(301	)	(334	)
Grants and subsidies	(4,506	)	(4,767	)	(4,564	)	(4,673	)	(4,864	)
Other payments	(851	)	(607	)	(591	)	(595	)	(605	)
Total operating payments	(16,873	)	(17,541	)	(18,266	)	(18,910	)	(19,523	)
Net cash inflows from operating activities	2,251		2,198		2,120		2,772		2,798
Payments for non-financial assets
Purchases of non-financial assets	(2,416	)	(2,486	)	(2,282	)	(1,982	)	(1,792	)
Sales of non-financial assets	351		652		221		247		225
Total non-financial asset payments	(2,065	)	(1,834	)	(2,061	)	(1,736	)	(1,567	)
Payments for investments in financial assets for policy purposes	430		(309	)	58		—		—
Payments for investments in financial assets for liquidity purposes	336		(429	)	(704	)	(1,317	)	(1,410	)
Receipts from financing activities
Advances received (net)	—		—		—		—		—
Borrowing (net)	173		342		502		429		218
Deposits received (net)	—		—		—		—		—
Distributions paid	1		—		—		—		—
Other financing (net)	(13	)	—		—		—		—
Total financing receipts	161		342		502		428		218
Net increase/(decrease) in cash held	1,114		(31	)	(85	)	148		39
Net cash from operating activities and investments in non-financial assets	186		364		59		1,036		1,231
Finance leases and similar arrangements	(2	)	—		—		—		—
GFS surplus/(deficit)	188		364		59		1,036		1,231

Table A.8

Public Trading Enterprise GFS Statement of Cash Flows

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
Receipts from operating activities
Grants and subsidies received	1,038		843		862		1,005		1,073
Sales of goods and services	6,260		6,240		6,368		6,616		6,888
Other receipts	756		631		674		723		732
Total operating receipts	8,054		7,714		7,904		8,345		8,693
Payments for operating activities
Payments for goods and services	(4,334	)	(4,151	)	(4,108	)	(4,246	)	(4,123	)
Interest	(659	)	(798	)	(860	)	(855	)	(857	)
Grants and subsidies	(85	)	(11	)	—		—		—
Other payments	(977	)	(862	)	(862	)	(885	)	(909	)
Total operating payments	(6,055	)	(5,823	)	(5,830	)	(5,986	)	(5,889	)
Net cash inflows from operating activities	1,999		1,891		2,074		2,359		2,804
Payments for non-financial assets
Purchases of non-financial assets	(2,096	)	(2,359	)	(2,069	)	(1,749	)	(1,646	)
Sales of non-financial assets	675		505		246		113		93
Total non-financial asset payments	(1,420	)	(1,854	)	(1,823	)	(1,636	)	(1,554	)
Payments for investments in financial assets for policy purposes	27		—		49		—		—
Payments for investments in financial assets for liquidity purposes	(121	)	11		248		(72	)	(71	)
Receipts from financing activities
Advances received (net)	(110	)	—		—		—		—
Borrowing (net)	589		631		140		(155	)	(264	)
Deposits received (net)	(1	)	—		—		—		—
Distributions paid	(895	)	(908	)	(663	)	(767	)	(732	)
Other financing (net)	(299	)	300		(100	)	—		—
Total financing receipts	(716	)	23		(623	)	(922	)	(996	)
Net increase/(decrease) in cash held	(232	)	70		(76	)	(271	)	183
Net cash from operating activities and investments in non-financial assets	579		37		251		723		1,250
Finance leases and similar arrangements	—		—		—		—		—
Distributions paid	(895	)	(908	)	(663	)	(767	)	(732	)
GFS surplus/(deficit)	(317	)	(871	)	(413	)	(44	)	518

Table A.9

State Non-PFE GFS Statement of Cash Flows

	Outcome		Revised Budget		Revised Projection		Revised Projection		Revised Projection
	2001-02		2002-03		2003-04		2004-05		2005-06
	$ million		$ million		$ million		$ million		$ million
Receipts from operating activities
Taxes received	4,638		5,089		5,160		5,431		5,544
Grants and subsidies received	10,037		10,220		10,537		10,909		11,291
Sales of goods and services	8,101		8,040		8,230		8,494		8,818
Other receipts	2,025		1,876		2,384		2,965		3,119
Total operating receipts	24,801		25,225		26,310		27,799		28,771
Payments for operating activities
Payments for goods and services	(15,469	)	(15,813	)	(16,729	)	(17,382	)	(17,655	)
Interest	(844	)	(975	)	(1,059	)	(1,090	)	(1,130	)
Grants and subsidies	(3,561	)	(3,947	)	(3,702	)	(3,668	)	(3,791	)
Other payments	(1,595	)	(1,308	)	(1,291	)	(1,295	)	(1,327	)
Total operating payments	(21,468	)	(22,044	)	(22,780	)	(23,435	)	(23,902	)
Net cash inflows from operating activities	3,333		3,181		3,530		4,364		4,869
Payments for non-financial assets
Purchases of non-financial assets	(4,478	)	(4,845	)	(4,351	)	(3,731	)	(3,438	)
Sales of non-financial assets	1,015		1,157		467		360		317
Total non-financial asset payments	(3,463	)	(3,688	)	(3,884	)	(3,372	)	(3,121	)
Payments for investments in financial assets for policy purposes	156		(9	)	7		—		—
Payments for investments in financial assets for liquidity purposes	215		(393	)	(456	)	(1,389	)	(1,480	)
Receipts from financing activities
Advances received (net)	(89	)	(10	)	4		4		4
Borrowing (net)	742		957		638		269		(49	)
Other financing (net)	(12	)	—		—		—		—
Total financing receipts	641		948		641		273		(46	)
Net increase/(decrease) in cash held	881		39		(161	)	(123	)	221
Net cash from operating activities and investments in non-financial assets	(131	)	(507	)	(354	)	992		1,748
Finance Leases and similar arrangements	2		—		—		—		—
GFS surplus/(deficit)	(129	)	(507	)	(354	)	992		1,748